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Faculty Research Working Paper Series
Robert N. Stavins
A.J. Meyer Professor of Energy and Economic Development
phone: (617)495-1820
Interpreting Sustainability in Economic Terms: Dynamic Efficiency Plus Intergenerational Equity.
Stavins, Robert N., Alexander Wagner, and Gernot Wagner. "Interpreting Sustainability in Economic Terms: Dynamic Efficiency Plus Intergenerational Equity." KSG Faculty Research Working Papers Series RWP02-018, May 2002.
Abstract
Economists have expended considerable effort to develop economically meaningful definitions of the somewhat elusive concept of "sustainability." We relate such a definition of sustainability to well known concepts from neoclassical economics, in particular, potential Pareto improvements (in the Kaldor-Hicks sense) and inter-personal compensation. In the inter-temporal realm, we find that dynamic efficiency is a necessary but not sufficient condition for a notion of sustainability that has normative standing as a goal for public policy. We define sustainability as dynamic efficiency plus intergenerational equity. Further, we argue that it is not unreasonable for economists to focus on the efficiency element, leaving equity considerations to the political process. The analogy to the relationship between potential Pareto improvements and (intragenerational) transfers can facilitate discussions about sustainability, both within the economics community and as part of an interdisciplinary discourse, and makes the basic concepts easier to operationalize.
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